Monday, November 30, 2015

EUA Dec15: At the edge of the trend channel

The EUA Dec15 contract closed higher Monday, as falling coal prices caused clean dark spreads to widen. Volume was reasonably high with 15.1 million, compared to a 30-day average of 12.8 million. The technical signals were contradictory. Bloomberg's trendstall indicator forecast falling prices, but the two last candles formed a bullish harami.

The price broke the resistance level at 8.64 euro easily on Tuesday. The upward move was accompanied by a strong trading volume. There was, however, one warning signal: thanks to the mainly sideways movement in the last six days, the 20DMA became flat and the 30DMA reached it from below.

The benchmark carbon contract took a dip on Wednesday, after the UK auctioned 3.1 million allowances at a clearing price below market and a bid-to-cover ratio of 2.01. However, the price recovered in the afternoon, following German power prices and finished the session at 8.63 euro, just 0.03 euro lower compared to Tuesday’s close. The traded volume remained below the monthly average possibly also reflecting markets preparing for the holidays.

Since mid-November the price moves in a range between 8.47 and 8.67 euro and Thursday was no exception. The low volumes because of the US Thanksgiving holiday increased the volatility of the price, but it didn’t leave the range mentioned. The hanging man formation from Wednesday and the 30DMA crossing the 20DMA provided slightly bearish signals. As a consequence, the EUA Dec15 was not able to hit a new local high. Disappointed traders sold off the benchmark carbon contract in the last hour of trading. The price tried to climb higher on Friday, but it could only reach Thursday’s opening at 8.60 euro.

The lower edge of the increasing trend channel halted the depreciation of the price and there is a chance that the price turns back higher towards the upper edge of the channel. 

There will be only four auctions this week with an auction volume of less than 12 million. In addition, the disappearing auction supply in the second half of December might support the price this week already.

The first resistance level is last week’s high at 8.67 euro, followed by the 2015 high at 8.71 euro. 

The 20DMA crossing the 30DMA and the candles from last week, however, warn traders about possible losses. Should the euro weaken further versus the US dollar, the dark spread would worsen and utilities would find less incentives to burn coal. The European Central Bank holds a rate setting meeting on Thursday. Although the market does not expect any changes in the current rate of 0.05%, the recent comment of the central bank officials increase the likelihood of further monetary easing. Should the ECB announce new tools, the first effect might be the weakening of the euro.

To the downside the first support is around 8.50 euro, followed by the 50DMA at 8.38 euro. 

Source: Bloomberg L.P.

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